The debate on economic policy has never been as riveting as it is today, with two giants from the world of academic economics, Amartya Sen and Jagdish Bhagwati, tackling each other on what India’s governance priorities should be. Photo: Mint

Updated: Thu, Jul 25 2013. 05 07 PM IST

The debate on economic policy has never been as riveting as it is today, with two giants from the world of academic economics, Amartya Sen and Jagdish Bhagwati, tackling each other on what India’s governance priorities should be. Sen is a Nobel Prize winner in economics and a professor of economics and philosophy at Harvard University. Bhagwati is a Columbia University professor of economics, who has been nominated for the top honour several times. Along with Sen and Avinash Dixit, he is considered to be among the three greatest Indian economists ever.

While Sen believes that India should invest more in its social infrastructure to boost the productivity of its people and thereby raise growth, Bhagwati argues that only a focus on growth can yield enough resources for investing in social sector schemes. Investing in health and education to improve human capabilities is central to Sen’s scheme of things. Without such investments, inequality will widen and the growth process itself will falter, Sen believes. Bhagwati argues that growth may raise inequality initially but sustained growth will eventually raise enough resources for the state to redistribute and mitigate the effects of the initial inequality.

Here are some of the best reads that capture the essence of the Sen-Bhagwati dispute:

In a 10 July story, Mint’s executive editor, Niranjan Rajadhyaksha outlined the contours of this debate and its significance in the national discourse. Rajadhyaksha pointed out that what appears to be an academic debate at first glance has a deeper political undertone. While Sen and his collaborator Jean Dreze are supporters of the entitlement-based public schemes launched by the Congress-led United Progressive Alliance government, Bhagwati and his long-time collaborator are unabashed admirers of what they call the Gujarat model of development. The Bhagwati-Sen fight thus underpins the contest between Narendra Modi and Rahul Gandhi for the spoils of 2014.

The debate between Bhagwati and Panagariya on the one side, and Sen and Dreze on the other has sharpened after the two sets of researchers released their new books on India. In Why Growth Matters: How Economic Growth in India Reduced Poverty and the Lessons for Other Developing Countries, Bhagwati and Panagariya hold up growth as the panacea for all of India’s ills. The book came out a little before An Uncertain Glory: India and its Contradictions, where Sen and Drèze prescribe state-led redistributive efforts as the solution to India’s problems.

Till recently, Sen had refused to be drawn into a direct battle with Bhagwati on the issue but it seems he is shedding his reticence now. After the Economist carried a review of Sen and Dreze’s latest book, Bhagwati and Panagariya wrote a letter to them, pointing out that Sen had only belatedly learned to offer lip service to growth. In a surprising counter-attack, Sen wrote back to the Economist, blaming Bhagwati and Panagariya for having “misdescribed” his past work as well as the latest book.

The latest turn in the great war of words comes in the form of a Mint opinion piece penned by Bhagwati. Bhagwati rubbishes Sen’s embrace of growth by citing instances where Sen has chided others for focusing too much on growth. Bhagwati argues that by providing the intellectual foundations for populist excesses and fiscal profligacy that stoke inflation, Sen is actually hurting the life chances of the poor. By arguing for redistribution to precede growth, Sen is putting the cart before the horse, Bhagwati says.

In a Mint interview, Sen said that both growth and welfare programs are needed, and not at the cost of each other. Subsidies that don’t aid the poor must go, says Sen. “What I don’t like is that when people talk about fiscal responsibility, they do it while sitting in their AC rooms, powered by subsidized electricity, eating food cooked by subsidized gas and travelling in subsidized diesel cars.”

Sen also questions Bhagwati’s argument that growth must precede redistributive efforts to improve human capabilities. “That’s not how things have happened in the world. They’ve all done it through increasing capability. I know of no example of unhealthy, uneducated labour producing memorable growth rates!,” said Sen, in an interview to Prospect.

Bhagwati says his ideas should be acceptable to both Modi and Gandhi, refusing to take sides in the political battle. Sen acknowledges some of Gujarat’s achievements but makes it clear that he does not want Modi as the prime minister, as he has ‘not done enough to make minorities feel safe.’

The origins of the current exchange of words and barbs lay in a December 2010 speech delivered by Jagdish Bhagwati to Indian parliamentarians. Bhagwati argued that it is the reforms of 1991 that have made even the lowest social classes greatly more prosperous today. Hence, those reforms must be strengthened. Critiquing the critics of India’s growth experience, Bhagwati argued that a low rank on the human development index (HDI) did not mean much. HDI owes its origins to the efforts of Sen and the renowned Pakistani economist, Mahbub ul Haq. Bhagwati questioned the widespread use of HDI, saying there was very little science behind the index.

The war of words triggered the growth versus development debate which continues to this day, drawing several other economists into the fight. The Consumer Unit and Trust Society published a book on it, with contributions from both sides of the great divide.

The battle between the two sets of researchers cannot be easily described as one between the left and the right. Still, admirers of the Sen-Dreze duo tend to lean on the left while those on the right tend to admire the Bhagwati-Panagariya worldview. Panagariya’s demolition of the ‘Kerala model’ that left leaning economists including Sen and Dreze had held up as a successful example of state-led redistribution efforts is central to the Bhagwati-Panagariya duo’s arguments. Panagariya argued that Kerala’s success in improving social outcomes had little to do with state led efforts.

Panagariya’s arguments have not gone unchallenged though. In a sharp rebuttal of Panagariya’s thesis, R Ramakumar, an associate professor at the Tata Institute of Social Sciences argued that Panagariya was selectively quoting statistics to drive his case and ignoring the regional variations within Kerala, while arriving at his conclusions.

The battle between economic ideas, such as the one between the great twentieth century economists, John Maynard Keynes and Joseph Schumpeter, often has profound and long-lasting influence on policy. Practical men, who believes themselves exempt from the influence of philosophers and economists are usually the slaves of some defunct economists, Keynes had warned. In a column for a special Mint series on the Bhagwati-Sen debate, Vivek Dehejia, an economics professor at Carleton University reinforces that Keynesian message to drive home the importance of the fight between today’s giants.

Writing for the same series on the debate, Planning Commission member Arun Maira argues that a focus on job creation will be the best resolution of this debate between growth and development. Quality jobs can help drive inclusion with growth, Maira says.

Ajit Ranade, the chief economist of the Aditya Birla Group AV considers the debate between Sen and Bhagwati to be overplayed. The debate is not about an embrace versus outright rejection of the market mechanism as much as it is about the sequencing of economic policies.

In a Mint column, Himanshu, an assistant professor at Jawaharlal Nehru University (JNU) points out that there is indeed a consensus among economists across the ideological spectrum that growth is desirable. But the process of growth --- whether it enriches crony capitalists more or the masses --- is as important as the growth number itself. Himanshu argues that welfare schemes rather than just growth have pulled people out of poverty in India.

Himanshu’s argument that redistributive efforts can be more effective in removing deprivations among the least well off finds support from two of his JNU colleagues, Amaresh Dubey and Sukhadeo Thorat. Research by the duo shows that poverty among lower castes and agricultural labourers fell faster in the period between 2004-05 and 2009-10 than before. Dubey and Thorat ascribe the faster poverty decline to the government’s redistributive efforts.

Others question the view that redistributive welfare schemes work best in aiding the poor. The faster rise in farm wages in the past few years compared to earlier years was primarily due to the ‘pull’ effect of growth, according to the economist and chairman of the Commission for Agricultural Costs and Prices (CACP), Ashok Gulati. The agricultural sector as well as the overall economy grew much faster in the second half of the past decade than in the first. In a recent research paper, Gulati points out higher growth and consequent increases in construction wages had a greater role in driving up farm wages in recent years than the government-sponsored right to employment law, operational in rural areas. Evidently, the last word on what works to fight poverty best in India has not been said yet.

If there is any other economist of nearly equal stature to the triumvirate of Sen-Bhagwati-Dixit among Indian economic greats, it has to be Sir Partha Dasgupta of Cambridge University. Dasgupta has made pioneering contributions in the fields of nutrition and natural resource economics, and spent a lifetime analyzing poverty. Dasgupta therefore has the last word in this compilation on the Sen-Bhagwati saga.

Dasgupta reviews the books written by Sen-Dreze and Bhagwati-Panagariya for Prospect and finds that both Sen and Bhagwati have failed to take a holistic view of the Indian growth experience, and hence offer faulty prescriptions. The constraints posed by depleting natural resources and high population growth are missing from the worldview of both economists, drawing Dasgupta’s ire.

“Bhagwati and Panagariya see government restrictions everywhere, while Drèze and Sen can’t take their eyes off poverty and inequality. But there are some of us who can’t help also noting the importance of “externalities,” which are the unaccounted consequences for others (including future generations) of decisions made by each one of us about reproduction, consumption, and use of the natural environment.”

Dasgupta mildly chides Bhagwati and Panagariya for their ‘self-adulatory style’ and dismisses the discussion of environmental problems in Sen and Dreze’s latest book as mere ‘banalities’ in this entertaining review.